The United States Supreme Court may be poised to issue its first decision on unclaimed property in 50 years. At issue in the combined cases of Delaware v. Pennsylvania and Wisconsin1 and Arkansas v. Delaware2 is the definition of MoneyGram’s Official Checks. Is it “a money order, traveler’s check, or other similar written instrument (other than a third-party bank check) on which a banking or financial organization or a business association is directly liable,” pursuant to 12 U.S.C. § 2503, or is it a third-party check? If it is considered a money order, traveler’s check, or other similar instrument, any unclaimed instruments would escheat to the state of purchase. If the Official Checks, as they are called, are considered to be third-party checks, any unclaimed instruments would escheat to the state of legal domicile of MoneyGram – Delaware.
Back to the Beginning
It all started with a dispute between Delaware and 20 states during an audit of MoneyGram by a third-party audit firm, Treasury Services Group (TSG). These TSG states maintained that MoneyGram Official Checks were treated as money orders in that the customer pays a transaction fee, the instrument is preprinted with the value paid, and MoneyGram is liable for the preprinted amount. Delaware disagreed, mainly by differentiating the Official Checks from traveler’s checks. Delaware also stated that they were not labeled as money orders and are not issued in such a way as to facilitate replacement if lost or stolen.
Delaware’s refusal to meet to discuss the issue led to several lawsuits being filed during 2015 and 2016 by Pennsylvania, Wisconsin, and finally Arkansas, along with 20 states. The Supreme Court consolidated the cases and appointed a Special Master in 2017 to conduct a detailed review of the legislative history of the Federal Disposition of Abandoned Money Orders and Traveler’s Checks Act (“the FDA”) to determine the meaning of the terms used when the law was enacted in 1974.
Now the First Report
On May 20, 2021, the Special Master issued the First Interim Report with his findings. It was determined that the FDA was enacted in response to the Supreme Court’s decision in Pennsylvania v. New York3, which held that abandoned money orders and traveler’s check should escheat to the legal domicile of the vendor. In response, the FDA mandated that money orders and traveler’s checks should escheat to the state where purchased. To do otherwise resulted in a windfall to the state of domicile while depriving the states of the revenue from the sale in the states where the purchasers reside.
The Special Master determined that the arguments of the states were more persuasive than Delaware’s arguments, which relied on technical differences between the Official Checks and money orders. The First Interim Report concludes that these differences had no material impact on the rights and obligations of the users, and that the Official Checks are similar to money orders, and as such, explicitly covered by the FDA, or at the least, they qualify as “other similar written instruments,” having the same result. This recommendation is pending with the Supreme Court.
On November 18, 2021, Delaware took exception to the Special Master’s recommendation and is urging the Supreme Court to reject the report as submitted. Delaware requests that the Court holds instead that the uncashed checks should escheat under common law rules instead of the FDA. Delaware objected to the Special Master’s definitions of “money order,” “third party bank check,” and “other similar written instrument.”
Delaware argued that the Official Checks are not labeled as money orders and should be considered bank checks paid through third parties. Delaware suggested that the Court should interpret the term “other similar written instrument” narrowly and exclude MoneyGram’s checks as they are not similar to money orders or traveler’s checks because those products “are specific commercial products with specific uses.”
The ball is now back in the Supreme Court. The Court will review the brief filed by Delaware as Exceptions to Report of Special Master and subsequently issue its ruling. Until that time, the classification of MoneyGram’s Official Checks remains undetermined for purposes of unclaimed property treatment. We will keep you updated as this issue progresses through the Court.
1 No. 22O145.
2 No. 22O146.
3 407 U.S. 206 (1972).
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